A Few Survive, and Thrive

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By Christopher Flavelle
Sunday, March 1, 2009

Rising profits are always heartening. But rising profits in the midst of economic calamity, when employment and GDP are tanking, consumer demand is falling, and companies such as Citigroup, Time Warner and Motorola are reporting quarterly losses in the billions of dollars -- that kind of success is the sweet nectar of the corporate gods. As we come out of one of the worst quarters in U.S. history, what's emerging is the picture of a handful of winners, companies that managed, through luck, planning or cunning to see their profits go up in the final quarter of 2008.

Call them the Survivors. How did they do it? The Big Money asked Praveen Nayyar, a professor of operations management and corporate strategy expert at New York University's Stern School of Business, to walk us through what these companies did right.

Of course, like a kiss, a quarter is just a quarter -- sweet but fleeting, and not the kind of thing you'd want to build any long-term predictions around. But in this economy, you've got to take your good news where you can get it. So here's how they did it.

-- Right Place, Right Time: Amazon and Netflix

Across the country, retailers have been groaning about a lack of customers, forcing many into bankruptcy. Evidence suggests that Americans are still consuming plenty, but they're relying more on Netflix and Amazon.

Amazon saw net sales increase by 18 percent last quarter, and profit jumped by 9 percent. Netflix, the company that made mail cool again, added 718,000 customers in the last quarter of 2008, for a total of nearly 10 million overall. Even better, according to the Associated Press, the cost of each of those subscribers fell by 23 percent over the same period the year before. The result: Netflix saw its revenue go up 19 percent and its profit increase 45 percent.

Part of the success of Amazon and Netflix came from offering new products: Amazon has digital music and out-of-print CDs, while Netflix benefits from a proliferation of devices that let people stream movies onto their televisions. And both paid attention to customer service, with Amazon in particular shortening its delivery time.

"Amazon has sped up its supply chain," Nayyar said. "It used to take five or six days to get something, and now it's one or two days." That helped the company beat its rival, eBay, which saw profits fall by nearly a third over the quarter.

But ultimately, the two companies were in the right place at the right time. In a bad economy, people want a range of cheap entertainment, and they'd rather not leave home to get it. Amazon and Netflix offered value and convenience, and their profits grew as a result.

-- The Forward-Thinker: Verizon


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